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  • Employment termination payments – for employees

    This information is for people whose employment has been terminated. It explains how your termination payments are taxed and how to complete your tax return.

    When you leave work or change jobs, you may receive several lump sum payments that are taxed differently to your normal income. One of these may be an employment termination payment (ETP).

    ETPs are generally taxed at a lower rate than your normal income, provided the payment is made within 12 months of your termination. ETPs include:

    • payments for unused sick leave or unused rostered days off
    • payments in lieu of notice
    • a gratuity or 'golden handshake'
    • an invalidity payment for permanent disability.

    You may also receive lump sum payments for unused annual or long service leave, or the tax-free part of a genuine redundancy or early retirement scheme. These aren't part of your ETP but may also be concessionally taxed.

    You will receive one or more income statements or payment summaries showing the amounts you've been paid and the tax withheld. Use this information to complete your income tax return.

    You can't roll over your ETP to your superannuation.

    Find out about:

    Your income statements or payment summaries and tax return

    Your employer will give you one or more income statements or payment summaries showing the amounts you've been paid and the tax withheld.

    If your employer reports to us through Single Touch Payroll (STP), they are no longer required to give you a payment summary. Instead, you will receive an income statement.

    Your income statement is available to you through ATO online services via myGov, your tax agent, or you can phone us on 13 28 61 for a copy.

    Use the information in your income statement or payment summary to complete your income tax return.

    Find out what to do if you receive an:

    PAYG payment summary – individual non-business

    PAYG payment summary – individual non-business

    Label

    What this is

    What to do

    Lump sum A or B

    These lump sums are for unused annual leave and long service leave. They may be shown on your , payment summary or on a letter or statement from your employer.

    See Tax table for unused leave payments on termination of employment.

    These payments are not part of your ETP but may be concessionally taxed.

    Enter these amounts on your tax return.

    Lump sum D

    If your termination was because of genuine redundancy or an early retirement scheme, your payments will include a tax-free component. This is shown at lump sum D.

    See Taxation of termination payments.

    This tax-free component is not part of your ETP and is not assessable income.

    It should not be shown anywhere on your tax return.

    Lump sum E

    These payments relate to earlier income years and return-to-work payments.

    These are assessable payments and need to be declared on your tax return.

    PAYG payment summary – employment termination payment

    If your employer pays you an ETP and doesn't report to us using STP, they must give you a PAYG payment summary – employment termination payment within 14 days. If your employer uses STP they will need to make a finalisation declaration through STP.

    Your income statement or payment summary will show:

    • the taxable component of your ETP
    • the tax withheld
    • a code for the type of ETP.

    Once your employer has provided the finalisation indicator in STP, we will pre-fill your tax return and display the information as 'tax ready' in myGov.

    If you have a payment summary, you will need to enter each of these amounts at Employment termination payments (ETP) on your tax return when you lodge it at the end of the income year.

    We use the code on your income statement or payment summary to work out which cap to apply and the correct rate of tax for your situation. ETPs are concessionally taxed up to the cap.

    If the code is O or P, your ETP is subject to the whole-of-income cap. This means if you earn more income after you leave work, you may pay more tax on your ETP when you lodge your tax return (see The whole-of-income cap and your tax).

    Your income statement or payment summary may also show a tax-free component. This is not assessable income.

    Find out about:

    See also:

      Last modified: 14 Apr 2020QC 50513